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BlackBerry layoffs to R&D, manufacturing staff imply strategy shift

This round of BlackBerry layoffs as part of an ongoing overhaul hit the R&D and manufacturing staff. Some say the cuts signal a BlackBerry strategy shift.

End users' continued preference for Apple and Google devices has led to a dramatically shrunken customer base for BlackBerry, which recently had to fire more of its staff to survive.

BlackBerry informed 250 employees from its Waterloo, Ontario product-testing facility this week that their jobs would be terminated, the company said in an email. It did not provide the total number of employees at the Waterloo facility. The layoffs follow 5,000 layoffs across the company last year.

They have costs under control and they are selling devices, but they have to figure out how to increase volume.
Bob EganMobile Strategist, Founder and CEO, Sepharim Group

As with any layoff news, customers and industry watchers are nervous. But the fact that the Waterloo employees were part of the New Product Testing Facility, a department that supports BlackBerry’s manufacturing and research and development (R&D) efforts -- a sacred area to technology makers that BlackBerry hadn't touched before -- is particularly troubling, said Bob O'Donnell, an analyst with IDC.

This round of BlackBerry layoffs is part of the next stage of the company's turnaround plan to increase efficiencies and scale the company correctly for new opportunities in mobile computing, the BlackBerry said in an email.

What do the BlackBerry layoffs mean?

These layoffs should come as no surprise because BlackBerry had stated in its quarterly earnings last month that it would continue the cost-savings and process-improving initiatives that began in 2012.

The move likely affects hardware rather than software, and indicates BlackBerry's emphasis on providing software for other device manufacturers, said Chris Hazelton, a mobile analyst with 451 Research, an analyst firm based in New York.

"If the hardware business continues to crumble, there is a software and services opportunity," Hazelton said. "That means that the company would become dependent on other device vendors, which would be a painful transition for them. It wouldn't be an ideal outcome."

The latest version of BlackBerry Enterprise Service management software supports Apple iOS and Android. BlackBerry also holds a number of assets around security for mobile data used by government agencies and enterprises, and now offers secure mobile workspaces for Android and iOS.

"It's something a lot of companies are trying to build," and something BlackBerry could have a leg up on, he said.

While a new emphasis on software and services would be a drastic change for the company, it may be a necessary one.

"There just isn’t as much demand as anticipated for Z10 and Q10," Hazelton said. "And there may not be the demand in the market for a potential third device, the A10 -- a larger version of the Z10…it is being shopped to channel partners now."

BlackBerry still in the game

While many industry watchers imagine vultures circling BlackBerry, that isn't the case. Far from it, said Bob Egan, mobile strategist and founder and CEO at Sepharim Group based in Falmouth, Mass.

In the three months ended June 1, 2013 (Q1 2014), the company reported revenue of $3.1 billion, up 15% from $2.7 billion in the previous quarter and up 9% from $2.8 billion in the same quarter of fiscal 2013. The revenue breakdown for the quarter was 71% for hardware, 26% for services and only 3% for software and other revenue.

Given how much of BlackBerry's business is hardware versus software, the idea that it will de-emphasize hardware is ill conceived, Egan said. 

During that quarter, BlackBerry shipped 6.8 million BlackBerry smartphones and approximately 100,000 BlackBerry PlayBook tablets.

Though PlayBook is now a dying breed, BlackBerry's other devices continue to sell.

"Their new devices have become a significant portion of their overall to say that they'll get out of the hardware device business suggests that they'll ignore the majority of their revenue.

"They have costs under control and they are selling devices, but they have to figure out how to increase volume," Egan said.

As part of its earnings release, the company said it would invest in BlackBerry 10 smartphone launches and the roll out of BlackBerry Enterprise Service 10. The company also said it would invest resources to evolve its BlackBerry Messenger mobile social messaging application and launch other initiatives associated with new services and emerging mobile computing opportunities.

"There was a lot of duplicity and distractions going on within the company, and they have done a good job getting more organizationally efficient to get everyone marching to a tune – whatever that tune may be," Egan said.

While the company leadership has streamlined operations, that's only one part of a successful strategy. The other component is innovation.

"The leadership has to take risks and spend some cash, become more innovative," Egan said. "I don't think the management is positioned to do that. They aren’t innovation leaders…they don’t know what to do to turn the company into another industry stalwart."

BlackBerry leadership may also be streamlining the company to make it saleable.

It’s either take risks or prepare for a sale, Egan said, "That's the bridge we are standing on."

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